Weekend reflections

Weekend Reflections is on again. Please comment on any topic of interest (civilised discussion and no coarse language, please). Feel free to put in contributions more lengthy than for the Monday Message Board or standard comments.

Am I missing something or are the pundits seriously underestimating Sydney’s favouritism for tomorrow’s Grand Final? What do Sydney have to do to be rated? Behind Adelaide they finished the season with the second best percentage, which is often a truer measure of overall performance than premiership points rankings. Yes Adelaide got knocked off but they were in poor form and running out of luck with injury at the wrong time. (you need a smattering of luck to win a premiership and you had it in gobs in finals in 97-8 Crows fans – luck has a habit of evening itself out)

It may be that the pundits still view Sydney as a dour shutdown team as they were early last season. All I can say to that is they kicked over 20 goals to despatch a creditable Dockers last weekend. The same Dockers that could spank West Coast at home in the Derby. This Sydney side is a better scoring outfit than the one that won the flag last year. They are also one of the coolest sides under pressure I’ve seen in the finals. The last or second last goal they manufactured from deep in defence against WC at Subi was absolutely awesome. They handballed again and again close in as WC did everything humanly possible to make them cough it up and eventually broke the cordon to run the ball and goal at the other end. Ruthless team discipline and the absolute belief in the team that Roos has drummed into them. It will take a mighty team to beat them and if they win tomorrow by 5 or 6 goals, the pundits will finally begin to understand that. Good luck West Coast, you’ll need it even though you are a very worthy contender. This Sydney club is capable of winning tomorrow and fronting up again in 2007.

This paper suggests that we can cool the planet enough to overcome the warming effect of CO2 for about US$25 billion per annum. The author won a Nobel Prize for his earlier work on Ozone holes so I suppose he is no slacker.

Back to the philosophy of science and the claim that Lakatos found a problem with Popper’s theories that had to be fixe up with his methodology of scientific research programs.

This week the ABC radio program The Philosophers Zone ran a story on Lakatos which I did not hear but a friend reported. Lakatos claimed that Popperâ€™s conception of science depended on conclusive refutations. The white swan refutes the theory that all swans are black (or vice versa).

There are at least two problems with that scenario.

1. Observations are problematic (was it really white [or black]).

2. Other theories and assumptions are involved in addition to the particular theory that is being tested – these theories relate to other events that are happening at the same time, the operation of the instruments etc etc.

The flaw with the Lakatos story is that Popper was perfectly aware of the above wrinkles, which is why he made a distinction between the clean logic of falsifiability and the messy actuality of falsification in scientific practice.

So it is simply wrong to suggest that Lakatos found that weak spot in Popperâ€™s scheme. Perhaps that is the reason why John has not been able to respond to my request for a clear statement about the problem with Popper that Lakatos claimed to have fixed.

Pity about the effort that has been wasted by folk taken in by Lakatos and his followers. But he was a charismatic fellow and his work on mathematics is widely admired by people like Joe Agassi who are aware of his scam in the philosophy of science. It seems that he managed to sell a gigantic dummy. Not for nothing was his background in the communist party, he was the ultimate academic politician and fixer.

It might be claimed that the significant contribution from Lakatos is the notion of programs but that line of thought came through Popper and Agassi. The Lakatos version of research programs was conservative and degenerating because it encourages the defence of the core of the program instead of promoting criticism that might lead to the elimination of error.

After having seen Al Gore’s movie, and reading an article in â€œPositionâ€? magazine in the last few weeks, I wanted to clarify some of the misconceptions that I and others may have had about the effects of global warming.

One of the points that Gore made in his movie was that the effects of global warming would not be uniform across the entire globe. I cannot remember if he was talking about atmospheric temperature or sea water temperature, but at one point he stated (within the context of a scenario of a partial melt of both the Greenland and Antarctic ice sheets), that the increase in temperatures in the tropics would be in the order of 1 degree while at the poles it would be 11 or 12 degrees.

The article from Position magazine (titled When the Ice Melts), comes from the June-July edition. Position is apparently the premier magazine for surveyors in Australia. I come across this magazine quite often, given that I work in GIS.

Anyhow, the premise of the article is that the effects of melting glaciers and ice sheets on the sea surface level, will not be uniform. The article is base on research performed by academics from the Western Australian Centre for Geodesy and the University of Stuttgart, and is also based on concepts developed in an 1888 article by RS Woodward, published in a USGS (US Geological Survey) Bulletin.

The academics have modeled the sea surface level under the scenario of a total (catastrophic) melt of all the ice in Greenland and the Antarctic. Yes, they do acknowledge that a total melt is unlikely in the immediate future.

The main concept that the article discusses is the gravitational pull of the water currently located in the ice that sits on land. When the ice melts, its gravitational effects will be redistributed, thus affecting the shape of the geoid. The article also discusses â€œelastic deformation of the Earth’s surface, due to changed surface loadâ€?.

According to the research, the sea surface level around the Antarctic would drop by 30 metres, while it would increase by about 90 metres in the â€œcentral northern Pacific Oceanâ€?. The effect on the height of the Earth’s crust at the Antarctic would be 20 metres. That is, the crust would spring upwards by 20 metres.

The article makes the point that the places that will feel the effects of the change in sea surface levels the most will be some of the more heavily populated regions. The Ganges and Mekong deltas, and half of Sumatera would disappear.

THE Bush Administration has lied about the level of violence in Iraq, especially against American troops, according to the investigative reporter Bob Woodward, who has spent the past two years researching and writing his new book State of Denial.

Woodward says that not only has the Administration lied about the level of violence, but it has buried intelligence reports that warn of the insurgency in Iraq getting worse in 2007.

The book, a detailed account of the war in Iraq, will hit the book stores in the next few weeks, and observers say it will not please the US President, George Bush – who agreed to be interviewed by Woodward…

No, not that I am aware of (though I’m sure that studies might suggest that the sediment would backup a bit more). It is an interesting idea. Does the action of the waves and ocean currents erode or deposit sediment? Does sediment fall off the continental shelves? Here is article from wiki that discusses sedimentation on continental shelves… (to muddy the water)… sorry.

The article (When the Ice Melts) did state that thanks to improvements in technology, we can now accurately measure subtle changes in sea level and the Earth’s gravitational field. â€œThe Topex/Poseidon, Jason-1 and Envisat altimetry missions measure the shape of the ocean surface using satellite-borne radar.â€?

heck I am impressed by your work ethic (if I knew how to put a smiley face in the post I would),

First I must counsel you that I have led you into heresy. Down this path you are likely to finish up on a JQ list. Carefully observe the behaviour, speech, thinking patterns and dress of the ‘true believers’ so that you can become one of the mob if you need to.

I am not an expert in the field of river sedimentation. It appears to me from my limited knowledge that deltas are in a dynamic equilibrium of the sedimentation coming in and the sedimentation going out. Other things being constant (only ever true in economics) I would guess that an increase in sea level would tend to slow the river flow down and thus lead to an increase in sediment deposition. You can see that the other things being constant is an heroic assumption.

One can safely draw the conclusion though, given the amount of anthropogenic climate change that it is reasonable to assume will happen, that it is vitally important for some heavily populated regions of the world that the sediment behaviour be understood in some detail.

Meanwhile by keeping the straw people of the denialists alive the true believers keep all the research money pouring into studies of how many degrees the temperature will rise 100 years from now. (Take away the conspiracy theory the actuality of research spending is reasonably accurate).

Our climate scientists having been asleep at the wheel since engineer Callender, have woken up in time to give us some time to adapt to the change.

We are now wasting that time, especially here in Australia. Nothing Australians do will effect climate change one iota. We can prepare Australia to adopt least cost adaptation paths.

In real terms we are doing little.

Our great, great, great grandchildren may wonder about our actions on mitigation. Our grandchildren we rue our inaction on adaptation

I concur . But someone has to take the lead. The argument that it cannot be Australia (because we are too small) is wrong. We have the resources and a great geographic location to initiate the change.

And things are changing. There was an episode of Catalyst a few months ago, that discussed some of the technologies being developed by energy providers (and technologists), that would reduce their carbon emissions by large amounts. Pre-heating water with solar collectors, before it is used in coal-fired furnaces is a cracker of an idea.

Sure we can’t expect that China will be able to take advantage of the same technology (to the same extent), but there are still plenty of alternatives. As Gore said in his movie, every little bit counts.

And ultimately, it is more about overpopulation than how we generate our energy. 1.3B people in china cannot live like the 300M in the USA or the 20M in Australia. I honestly think that their expectations (and ours) must be lowered. Or at least made more reasonable. We cannot all live like Donald Trump.

John, would you like to explain how Popper’s response to the conjectural nature of observation statements is inadequate?

First you will need to explain the problem that he was addressing.

Here is an idea, what if you invite your best students to have a look at Popper, Lakatos, Blaug, and Boland, and see if they can understand why you point them to Latakos and Blaug instead of Popper and Boland?

That’s not my interpretation of the paper. It seems to me he is saying that for $25 billion we could regain the global dimming effect we were getting from aerosols in the troposphere, which is now dropping away (hopefully without the distorting effects which caused rainfall belts to move in Africa, contributing to famines).

However, as this only counteracted a part of GHGemissions we would need a much larger effort (a figure of 5.3 times seems to be implied) in order to offset curret GHG emissions. So the estimated figure should be of the order of $125 billion a year. Huge error bars on this of course, and as he stresses it would need to be checked for negative side effects.

There is an interesting and also scary discussion on the recent passage of new anti-terror legislation by the US Congress here, at Economist’s View. How long will it be before we realise that far from needing the Americans to protect us, we need someone to protect us from the Americans. Looks like a DIY job to me.

Here is the measure that snuffs out finally Bush’s sputtering neo-con dream.

On Friday 29 Sept 2006, using its constitutional power to, rein in executive power, the US Senate unamimously passed a military funding bill that blocked the Bush administration “from building permanent U.S. military bases in Iraq or controlling the country’s oil sector”.

Now the question may well be asked: if the Bush Administration never intended to do such a thing, why bother passing legislation to ban it?

Interestingly, the Democrats had attempted to have these blocks included in earlier bills. But the Republican majority stripped them out. Now every Republican Senator has supported this measure.

The only valid explanation is that Republican Senators once endorsed Bush’s neo-con dreams and believed in funding them. But now they recognise that Bush’s neo-con dreams, though perhaps desirable, are now unattainable.

Additionally, Senators have called upon Bush to make a definitive statement repudiating his neo-con dreams.

Interestingly, legislative constraints on military expenditure were the means by which Congress reeled in the Nixon and Ford administrations in the countdown to catastrophe in Vietnam.

It is now clearly up to the American people to demand to know how their blood and treasure were squandered on such a quixotic dream, and to punish electorally their legislators who allowed it to be funded for so long.

The Chinese may have reached the Holy Grail and are set to become the new Arabs.

On the radio there is a brief report that the Chinese have run a Tomah fusion reactor for three minutes and reached some very high temperature.

Energy will now be so cheap and green â€˜theyâ€™ will not bother too charge for it (except for the royalties to the Chinese). You may have heard something like this about 50 years ago. That was a false dawn.

Can I be the first to demand the wicked Howard Government should immediately joint venture with the Chinese putting all Australiaâ€™s research and foreign aid funds into the venture to ensure the Promised Land is reached as soon as possible.

Of course because it is thermonuclear energy and the basis of the H-bomb we will not have the facilities in Australia. Our scientists will have to do their experiments overseas in case there is an accident leading to contamination of agricultural products.

I notice our intelligence agencies gave no hint of this event â€¦.asleep at the wheel again.

Many moons ago I wrote a guest post on this blog, about the development of transport technologies and what drove that. One point was the nudge towards steam locomotion that a horse shortage caused, a shortage in turn driven by the Napoleonic Wars that pushed steam locomotion past a tipping point (unlike, say, what befell Marc Isambard Brunel’s mechanised way of making pulleys). It was a shock, in standard jargon.

WEll, I’ve just come across another suggestion about the horse shortage. The (current version of the) wikipedia article on oats suggests that many horses died when oat production fell sharply in the “year without a summer” after the 1816 eruption of Tamboura. The two ideas are complementary and mutually consistent rather than contradictory, of course.

You asked me a question in the thread on Telstra, which I believe does not belong to the thread. Since you asked politely, I feel obliged to reply. However, my reply is conditional on you not playing the player rather than the ball. Lets see how far we get.

“As you know, I am not an economist and am not a mathematician. Has what Hayek said been falsified or just made mathematically robust in the references given?”

It is difficult to reply to your question because of an information asymmetry regarding methodology ( the ‘market’ is apparently not resolving this problem).

Mount and Reiter (the reference) have shown that ‘a complete market’ is informational efficient in a sense made precise which is a little difficult to express in ‘plain English’. However, I can say that the informational efficiency is not the same as what you may have come across in the Fama-type Finance literature. The informational efficiency in Mount and Reiter has something to do with the size of the information space required to achieve an optimal outcome, the latter being related to individuals’ preferences and resource feasibility.

Mount and Reiter’s work does not make v. Hayek’s beliefs “mathematically robust”. Their work provides conditions under which v. Hayek’s beliefs can be said to make sense to an analytical economist. I am not saying that v. Hayek’s work was crucial to this research. The question may have arisen anyway.

The question of interest to analytical economists is whether or not markets are ‘complete’ and, if not, why not. At any time the ‘objects’ to be traded in ‘markets’ need to be explicitly specified (so one doesn’t theorise in ‘thin air’).

There is no ‘debate’ about ‘pro market’ or ‘against market’ in analytical economics. There is no room for rhetoric and no room for playing the player rather than the ball. In a sense, the idea of the researcher being ‘disinterested’ is upheld.

So, are markets complete? No. The entire area of environmental economics provides evidence that markets for things that are of great importance for the â€˜material welfareâ€™ of humans (water, soil, fauna, flora, acoustic environment, air) are incomplete. And why? Because exclusiveness in consumption is not even approximately fulfilled.

In this sense v. Hayekâ€™s beliefs have been falsified, although I would not use this terminology because v. Hayekâ€™s writings does not fit well into a research program where â€˜falsificationâ€™ is well defined.

What next? Analytical economists try to arrive at methods which aim to approximate theoretical solutions of models with complete markets as much as possible. Debate, if this is the right word, takes place about technical matters (constructive criticism would be my preferred term).

I am not aware that anybody who considers him or herself a member of the v.Hayek school has advanced at all toward contributing toward feasible solutions to actual economic problems. To this extent I completely concur with JQ that the research program of the Austrian school has come to a standstill.

Ernestine,
I am happy not to play the player when the player is playing.
I am also struggling to find decent references on how market completeness is defined. My understanding is that a complete market is one where every item in that market has a price, expressed is some way. I presume this is not correct due to your reference to “exclusiveness in consumption”, which I can only find in relation to biological studies. Can you give me your interpretation of the conditions for a complete market?
I would also presume from what you were saying that where markets are approximately complete v. Hayek’s work does make sense to an analytical economist. Please confirm.
The second string to my comment was also that, hopefully rephrased to suit the framework you are using, where a market is incomplete and not even approximately complete, is there any grounds for confidence that any particular agent acting within the market or partially or wholly external to it is going to be able to arrive at a more optimal solution than the market as a whole?

On a Club Troppo thread on the sale of T3
i posted this question (never afraid to demonstrate ignorance):
Given, to a practical degree, efficient markets can you explain to me why once you go to a diversfied group of stocks and allowing for the occassional dud (risk) the return would be any higher than putting your money in the bank.

The reply was :

taust,

I didnâ€™t write the post. But in response to your question, the answer is that I canâ€™t explain it. No-one can. But the return on stocks is around 5-6% higher on average than the return in the bank. If we really had efficient markets then, at least according to some theorists the margin should be around 0.5%.

And weâ€™re geting closer to an explanation via behavioural finance and the statistics of rare events. And probably a few other things. Quiggin knows the literature much better than me – heâ€™s a world authority on it. Go ask in this Weekendâ€™s Weekend Reflections.

somewhere I posted that if you work for a client the work is the clients property. If you work for the Government your work is the governments property. Every now and again for every government this fact is made very plain.

Its the real world. Reality trumps theory and ideology or idealism.

To explain the actions of the US (or any Government) forget the people and work out what the self interest of the country is. Probably 90% of the time you will get close to the correct explanation.

When human being appear to behave irrationally it is because you do not know enough about their perception of the situation facing them

Never believe a conspiracy theory without beyond reasonable doubt evidence. (basically never believe a conspiracy theory).

I did not indicate that I can help you understand. I said I reply if you retract a sentence. You did. So I shall reply.

1. References for â€˜complete marketsâ€™: Supplied many months ago.
2. â€œMy understanding is that a complete market is one where every item in that market has a price, expressed is some wayâ€?. This is a tautology.
3. â€œExclusiveness in consumptionâ€?: Consult elementary economics text.
4. â€œConditions for a complete marketâ€?: Everything of importance for the material welfare of humans consists of â€˜marketable commoditiesâ€™ (see Debreu for definition of â€˜a commodityâ€™) Marketable commodities are those for which â€˜exclusiveness in consumptionâ€™ is empirically feasible.
5. â€œI would also presume from what you were saying that where markets are approximately complete v. Hayekâ€™s work does make sense to an analytical economist.â€? The expression â€œwhere markets are approximately completeâ€? makes no sense to me. Please explain.
6. â€œSecond stringâ€¦â€?: I canâ€™t reply due to item 5 and terms such as â€˜optimal solution than the market as a wholeâ€™ â€“ what do you mean?

In reverse order:
6. Perhaps a rephrase will make it clearer. Even if the market is incomplete, surely government interference could only be justified if the government knows both the causes of the incompleteness, the correct corrective action and the likely outcomes of those actions? It would not therefore be sufficient just to demonstrate market failure, but also to justify why the information the government has is better than that available to the (other) participants in the market?
5. I am trying to fully understand your paragraph 8. Are you saying there that all markets are incomplete because exclusiveness in consumption is not even approximately fulfilled? If not, and there are markets where exclusiveness in consumption is (at least) approximately fulfilled, does this mean that there are markets where v. Hayekâ€™s work does make sense to an analytical economist? I presume from your paragraph 4 there are.
3. I consulted my (admittedly old) texts and it was not there. I also used Google, Alta Vista and Google Scholar to try to find it – I could only find it in re biology.
2. It may be tautologous, but it is my understanding.
1. I take it you mean the references you supplied here. It may take me some time to get through them to find a definition. If you have one to hand it would speed my search – or at least a page reference. I can then get the exact one back out and respond more quickly.

â€œConditions for a complete marketâ€?: Everything of importance for the material welfare of humans consists of â€˜marketable commoditiesâ€™ (see Debreu for definition of â€˜a commodityâ€™) Marketable commodities are those for which â€˜exclusiveness in consumptionâ€™ is empirically feasible.

Wouldn’t the market not also be “complete” if all the non marketable things of importance to material welfare were infinitely abundant and free (ie not scarce).

Thatâ€™s not my interpretation of the paper. It seems to me he is saying that for $25 billion we could regain the global dimming effect we were getting from aerosols in the troposphere, which is now dropping away (hopefully without the distorting effects which caused rainfall belts to move in Africa, contributing to famines).

However, as this only counteracted a part of GHGemissions we would need a much larger effort (a figure of 5.3 times seems to be implied) in order to offset curret GHG emissions. So the estimated figure should be of the order of $125 billion a year. Huge error bars on this of course, and as he stresses it would need to be checked for negative side effects.

Stephen,

I only just saw your comment.

On re-reading the relevant section of the paper it appears that you are correct. It would take US$125 billion per annum (with error bars) to neutralise Global Warming by injecting Sulfure (or soot) into the stratosphere.

[â€œConditions for a complete marketâ€?: Everything of importance for the material welfare of humans consists of â€˜marketable commoditiesâ€™ (see Debreu for definition of â€˜a commodityâ€™) Marketable commodities are those for which â€˜exclusiveness in consumptionâ€™ is empirically feasible.]

“Wouldnâ€™t the market not also be â€œcompleteâ€? if all the non marketable things of importance to material welfare were infinitely abundant and free (ie not scarce).”

Good question.

I submit that the answer to this question separates the ‘metaphysical economistsâ€™ from economists who accept that the subject matter of Economics intersects with that of natural science.

Ernestine,
Probably the same answer as Debreu’s – “I’m dead, figure it out yourselves.”
(Apologies for any possible disrespect).
If my (limited) understanding of this model is correct this would provide the unique solution to the equilibrium required under the model – but in reverse, rather than starting from first principles.

The model in Debreu (1959) contains a precise answer to the question: There is a strictly positive finite number of commodities (which implies a finite time horizon – it could be millions or billions of years but it is a finite number of dates). Endowments of commodities are finite. This means ‘finite resources’. Hence, infinite abundance of anything of material interest to humans is ruled out. The assumption of ‘finite resources’ is amenable to judgement by natural scientists.

Ernestine,
I answered your question from a purely metaphysical POV.
I am afraid time and research limitations do not permit me to trawl through his writings to find this out. From memory, though, he was not strongly into metaphysics and was strongly practical. His answer, then, may well have been the same as Debreu’s – although possibly not couched in the same terms.
I would be particularly interested in your reply to my reply to your point 6, if you could supply that.

“I would be particularly interested in your reply to my reply to your point 6, if you could supply that. ”

Point 6 (Andrew Reynolds): “Perhaps a rephrase will make it clearer. Even if the market is incomplete, surely government interference could only be justified if the government knows both the causes of the incompleteness, the correct corrective action and the likely outcomes of those actions? It would not therefore be sufficient just to demonstrate market failure, but also to justify why the information the government has is better than that available to the (other) participants in the market?”

What are the questions? Alternatively, what are the statements for comment?

The question from that would be whether government action is justified only on proof of market failure or whether some other test ought to be applied.
In other words whether the statement I have made above is correct or not.

‘Incomplete markets’ entails the absence of price signals. The role of prices is to coordinate disaggregated decisions by individuals. The absence of price signals means there is a ‘coordination failure’. This coordination failure is NOT due to governments preventing or ‘interfering’ in markets.

Global warming (due to human activities) is an example of the incompleteness of markets. Governments (some) are involved in creating an artificial market (pollution trading rights) or they try to influence market production and consumption decisions via taxes.

It is conceivable that some governments may not have become involved in solving the coordination failure because they read or listened to ‘metaphysical economists’ (but this becomes an empirical question for political historians – or whoever is interested in this type of research – to explore).

Ernestine,
Do all “incomplete markets” have an absence of price signals or does it also include markets where the price signals give a wrong picture on some objective (or even subjective) measure?
Even in the case of greenhouse emissions, I would argue that prices are, at worst, giving wrong signals, rather than simply being absent. The signal being given at the moment is that carbon emissions into the atmosphere have a price that is close to zero, rather than the probably higher true cost. In that sense, there is probably no market where price signals are absent – just where they may be wrong.
Perhaps I should state that I am not arguing that there should be no interference by governments; just that before interference happens a rigorous cost / benefit analysis should be done and there should be a bias in favour of inaction incorporated into the consideration process.
I would be interested to read under which conditions you consider government interference in the markets would be justified. This need not be from the point of view of you as an economist (although I would expect that this may be incorporated) but you as a person.

“Wouldnâ€™t the market also be â€œcompleteâ€? if all the non marketable things of importance to material welfare (of humans) were infinitely abundant and free (ie not scarce).â€?

I submit that the answer to this question separates the â€˜metaphysical economistsâ€™ from economists who accept that the subject matter of Economics intersects with that of natural science.

What is the answer to the question in v. Hayekâ€™s writings?

I read your first reply, Andrew. I can’t accept it as an answer from a person, such as your good self, who promotes v. Hayek. So, either v. Hayek has something relevant to say and you find out about it or we forget about v. Hayek.

Ernestine,
Ernestine,
There are very few people I ever get frustrated with – on blogs, probably only two – you and GMB.
You seem to have a habit that I find very frustrating – the continued avoidance of giving a (what to me seems to be) clear answer.
As you know I am not a professional economist. I do not hav eht etime needed to filter through the lifetime’s work of someone who was a prolific writer. Even though I believe that, in most thing, Hayek was correct, this does not necessarily mean I have his whole back catalogue indexed and fully searchable on topics on which he may or may not have had an opinion. I presume you do not know because otherwise asking the question is an example of bad faith and an attempt to prove intellectual superiority in some way.
Perhaps you could give your own opinions – you know, your own thoughts – on the questions I have raised. I really would be interested to read them.

Andrew, I gather we are at the end of the conversation because you revert to focusing on the person rather than on the subject. Anyway, I felt there was a little, albeit temporary, improvement in communications.

Ernestine,
I hope not, because I am genuinely trying to find out what you believe on this. I was trying to explain why I am finding this frustrating as well as interesting and hoping that you could give me your opinion.

I think that the discussion between Ernestine and Andrew has been interesting. However I don’t see the issue as hugely different to the classical discussion about the need for certain public goods (eg a military for defence, a criminal justice system for civil peace).

I have no problem in principle accepting the need for government intervention to avoid collective threats such as AGW. However I think that there is a legitamate debate to be had about the need for such intervention on a case by case basis and a legitamate debate about whether on aggregate we should have government intervention before threats are a clear and present danger.

For instance I think that the US government has a responsibility to protect its citizens against foreign governments and criminals. If Saddam had WMD and the will to use them against the USA then the invasion of Iraq was probably essential. However one can still debate about the accuracy of the intelligence that points to WMD or the general nature of the threat. In my view the war was not necessary but I think that the debate was certainly legitamate and appropriate.

Likewise with the threat of AGW I think that the debate is legitamate. I don’t personally think that Kyoto has much to offer and I don’t personally think that the extent of the threat is entirely clear, so I am inclined to drag my feet (a lot) on this issue. However I do think the debate is legitamate and I do reserve the right to endorse government action.

There is also the concern that people come to such debates with secondary agendas. Some people in the AGW debate want to see the rich developed nations transfer their wealth to the underdeveloped nations. Some want to see the coal industry remain prospereous and some want to see it ruined. Some want to see corporations that trade in energy futures (eg Enron) successful. These secondary agendas make empowering governments to take action problematic. The same is true on the war in Iraq where oil interests and the weapons industry all cause me a lot of pause.

Whilst I have no problem accepting the notion that markets are not complete I also take the view that governments are almost universally without a lot of benevolence or wisdom. As such the cure for some problems is worse than the original problem and in many instances we just need to accomodate imperfect outcomes.

Regards,
Terje.

P.S. For a good childrens book on the need to sometimes accomodating imperfect outcomes I recommend the following:-

Ernestine,
Perhaps a little explanation about where I am coming from. As you know, I am not a professional economist. Have a look at my blog and you will see the field I work in – it is, and has to be, practical – but informed by theory. I have used my understanding of Hayek and some of the other Austrian economists to inform myself on the way that the markets that I work in operate. For this I find them very useful. I also see the effects of government interference in the markets every day and, where the interference is such that it imposes new requirements on the participants in the markets it is almost uniformly unhelpful to the ultimate consumers of the services provided (IMHO). Even where they are useful, again IMHO, there are better ways to provide them than through government imposed regulation.
What I do not have the time to do is to read through a large amount of theory to get to the point. I already have to do a mountain of reading (try reading the Basel Accords if you are interested) and then I have to advise my clients on them.
I am genuinely interested in what you have to say, apart from anything else because I believe it has a good chance of informing me on the way that markets work and, I hope, in some small way, improving your understanding of the sorts of areas I work in.
What I do find frustrating is the way you, to me at least, give the appearance of trying to win an argument through logic chopping. I am not trying to argue – I am trying to understand. If I am sometimes short and appear rude, I apologise – but I would appreciate it if you could try to answer my questions in a way that may be relevant to the question, rather than deciding it is unrelated.

This site is a “commentary on australian and world events from a social democratic perspective”. I don’t think Andrews chit chat is out of context. But why bother engaging people when ivory is so nice and smooth and secure.

Would you please direct me to v. Hayek’s work which is relevant for ‘risk management’, ‘financial stability’, ‘deposit insurance’, and the practical decision problem of a person who has to decide whether or not to entrust their few bobs with a bank?

Ernestine,
I thought you were the one lecturing on trying to keep this relevant. Perhaps you could indicate where Debreu spoke on these. Moving on – do you have any opinions on the questions I have already raised?

I understand that in your experience v. Hayek has nothing to offer regarding ‘risk management’, ‘financial stability’, ‘deposit insurance’ and the practical problem of an individual who decides whether or not to put his or her few bobs into a bank.

Mind you, I would not criticise v. Hayek for this – as said in one of my earlier posts, his work from the mid-1940s is still considered important in its historical context. My consternation arises from you promotion of v. Hayek without being apparently able to give even one concrete example of v. Hayek’s relevance in 2006, either in terms of economic theory or in terms of practical relevance for your work as you described it.

Good risk management is clearly founded on a clear understanding of the markets in which you operate. Without this understanding there cannot be risk management as you cannot understand the risks the markets throw up. (BTW – try reading Mandlebrot if you have a real interest in this – his work on VaR is particularly interesting).
If you insist on getting a bit more precise, then a good look through Hayek’s collected essays in “Good Money”, with an emphasis on Part II – he clearly goes through financial system stability. There is also plenty of relevance from either the Austrian or Chicago schools on all of these – and it all serves to give a better picture of a real market than speculating about metaphysical economics.
M. Friedman’s perspective on deposit insurance (see Money Matters or the interveiw here reflects the market distorting effects the Fed has and attempts to reduce these by putting in deposit insurance. Personally, I would have said it would be better to solve the problem rather than treat the symptom, but under the conditions he is discussing, I have no real problems with his analysis.
Now we have that cleared up, perhaps you could let us know your opinion.

Ernestine,
If you prefer a little bit more from actual economists on this topic, a look at catallaxy may assist. I know it does degenerate into “chit-chat” on a regular basis, but Jason, and and a few others will be able to provide some of the specific references that you are seeking. A good place to start would be here.

Why would you need ‘risk management’ if the market works as per v. Hayek’s beliefs? Why would you need any managers at all? Isn’t it the individual who counts and doesn’t v. Hayek believe (at the same time) in the benefits of ‘the division of labour’?

As for ‘money’, there is v. Hayek’s “Denationalisation of Money: The argument refined, 1978″

Would you please tell me what v. Hayek has to say on the point of the importance of strict risk aversion of all issuers of financial securities in non-explosive solutions to a â€˜competitive private ownershipâ€™ economy and would you please tell me what von Hayek has to say on the incompleteness of financial markets?

What exactly is v. Hayek’s concept of ‘stability’? How did he make it precise?

Ernestine,
You need risk management because, as he pointed out, things change unpredictably. Only if you could know what is going to happen in the future do you not need to manage risks. Come on – this is basic stuff. I simply cannot believe that you are asking questions like this.
As for the others, you appear to know it. If you do, could you please let us all know? I am sure you are going to be better at summarising it than I am.
You may have told me your opinion, but I cannot locate it. Can you please let me know or at least link to a comme tthat carries it?

I understand that in your experience v. Hayek has nothing to offer regarding â€˜risk managementâ€™, â€˜financial stabilityâ€™, â€˜deposit insuranceâ€™ and the practical problem of an individual who decides whether or not to put his or her few bobs into a bank.

Mind you, I would not criticise v. Hayek for this – as said in one of my earlier posts, his work from the mid-1940s is still considered important in its historical context. My consternation arises from you promotion of v. Hayek without being apparently able to give even one concrete example of v. Hayekâ€™s relevance in 2006, either in terms of economic theory or in terms of practical relevance for your work as you described it.

Sorry, Ernestine – it was a little way up the thread. The actual question unanswered at the moment – as far as I can see – is the below:
“I would be interested to read under which conditions you consider government interference in the markets would be justified. This need not be from the point of view of you as an economist (although I would expect that this may be incorporated) but you as a person.”
It was here.

On a different topic, SBS is showing a PBS Frontline story tonight on lies and the Iraq war. I thought of you when I saw it advertised, since you were arguing a while back that the invasion was an honest mistake. I’ll be interested in your reaction, if you catch it.

James,
I hope I will be home from work in time to see it. I still maintain the WMD issue was an honest mistake – at least I have seen no evidence to the contrary.
From my POV, the whole thing was a cock up from the moment the victory was won on the battlefield – the US (and Britain) plainly had not put enough into deciding what to do afterwards. It seemed to be “beat Saddam, find the WMD, crow at how well we had done and then hand over to Chalabi”.

Shows I should be reading here more often;-)
.
Ernestine,
Back on the point I raised – interesting little piece over at catallaxy that is directly relevent. I would be very interested in your perspective on this.